I would now like to share my conclusions about Trade Secrets, and thereby dispel some serious misconceptions about them that still linger and lurk around but should be eradicated once and for all.

My views would strike you as iconoclastic, if not heretical, should you believe, as does a noted professor in Washington, that Trade Secrets are the “cesspool of the patent system.” Nothing, of course, could be further from the truth! Trade Secrets are not only the oldest but also the most prevalent form of IP protection.

Over 90% of all new technology is grist for Trade Secrets. Patents are but tips of icebergs in an ocean of Trade Secrets. All technical and business information, including inventions, know-how and show-how can be maintained as Trade Secrets. Thus, Trade Secrets are not just for early-stage and subpatentable developments and manufacturing processes at best, as some believe.

All companies and institutions have tons of Proprietary Information, whether or not they appreciate it. In an IPO survey awhile back, 88% of the participating corporations rated Trade Secrets as their most important intellectual assets. So it’s no surprise that Trade Secrets are often referred to in industry as “crown jewels.” And, especially internationally, Trade Secrets are the “workhorse of technology transfer.” (Bob Sherwood)

Further proof of the importance of Trade Secrets is the fact that in recent Trade Secret litigation, Walt Disney, Cargill, and Toshiba each had to shell out several hundred million dollars in damages for Trade Secret misappropriation.

Regarding the Patent/Trade Secret interface, let’s keep in mind that all Patents are born as Trade Secrets, and that Trade Secrets also accompany Patents and outlast Patents. Patents and Trade Secrets are not mutually exclusive, but highly complementary and mutually reinforcing. In other words, they dovetail.

“The co-existence is well established,” according to Don Chisum. Hence, the question is not whether to patent or to padlock, but rather what to patent and what to padlock simultaneously. There is much overlap between Patents and Trade Secrets that can and need be exploited for synergistic dual protection.

[A]nent the criticality of Trade Secrets in technology licensing (also in franchising), let’s be mindful that over 80% of technology licenses cover Trade Secrets or are hybrid licenses covering Patents and Trade Secrets. Furthermore, it is indisputable that licenses under Patents without access to the associated or collateral know-how are often insufficient to practice the patented technology commercially. A patent specification is often too brief and too general and discloses only embryonic or rudimentary R&D results rather than the ultimate scaled-up commercial embodiment.

I have authoritative quotations from experts about the overarching role of Trade Secrets in technology licensing. For starters, let me recite just one from Mel Jager.

“Trade Secrets are a component of almost every technology license … (and) can increase the value of a license up to three times to ten times the value of the deal if no Trade Secrets are involved.”

Thus, as a licensor you would leave money on the table, if you did not include Trade Secrets in the transaction.

1. a secret in the sense that it is not generally known in the trade,
2. valuable vis-à-vis the competition that does not possess it and
3. the subject of reasonable efforts to safeguard and maintain secrecy.

After reciting the trade secret definitions, a word about nomenclature and terminology associated with the usage of the terms “know-how” and “trade secret” is quite germane to clear up semantic confusion. While the key requirement of a trade secret is secrecy, definitions of “know-how” are completely silent on secrecy as can be seen from the following definitions:

• Know-how. The knowledge and skill required to do something correctly. (The American Heritage Dictionary, p.705)
• Know-how. Information that enables one to accomplish a particular task or to operate a particular device or process. (J. Thomas McCarthy et al., McCarthy’s Desk Encyclopedia of Intellectual Property, p. 330 (3rd ed. 2004)).
• Know-how is knowledge and experience of a technical, commercial, administrative, financial or other nature, which is practically applicable in the operation of an enterprise or the practice of a profession. (International Association for the Protection of Intellectual Property, Mexican Congress Resolution (1973)).

Trade secret law is the oldest form of IP protection, and already in Roman times the law afforded relief against a person who induced another’s employee (slave) to divulge secrets relating to the master’s commercial affairs. Trade secrecy was practiced extensively in the European guilds in the Middle Ages and beyond. Modern trade secret law evolved in England in the early 19th century — in response to the growing accumulation of technology and know-how and the increased mobility of employees. Recognized in U.S. by the middle of the 19th century, Peabody v. Norfolk (98 Mass. 452 (Mass. 1868)) held that a secret manufacturing process is property, protectable against misappropriation; secrecy obligation for an employee outlasts the term of employment; a trade secret can be disclosed confidentially to others who need to practice it and a recipient can be enjoined from using a misappropriated trade secret. This decision anticipates the characteristics of our present trade secret system and by the end of the 19th century the principal features of contemporary trade secret law were well established. It is interesting to note that Henry Perritt believes that indeed trade secrets are “the oldest form of IP protection” and that “patent law was developed as a way of protecting trade secrets without requiring them to be kept secret and thereby discouraging wider use of useful information.” (Henry H. Perritt Jr., Trade Secrets 1-1, 3-7 (Practising Law Institute 2d ed. 2006)) That makes patents supplements to trade secrets and not trade secrets supplements to patents as is commonly assumed.